The Annual INSIDE Public Accounting National Benchmarking Report

Transcription

1 The Annual INSIDE Public Accounting National Benchmarking Report EXECUTIVE SUMMARY 2010

2 THE ANNUAL INSIDE PUBLIC ACCOUNTING NATIONAL BENCHMARKING REPORT This complimentary EXECUTIVE SUMMARY is sent to all firms that fully participated in the 2010 INSIDE Public Accounting Annual Survey and Analysis of Firms. Published by: The Platt Group 4000 West 106 th Street, Suite Carmel, IN (317) P IPA SUBSCRIBER / FULL SURVEY PARTICIPANT PRICING $409 Hard Copy or PDF Copy $499 Set (Set: Hard Copy & PDF) 2010 NON-IPA SUBSCRIBER, NON-PARTICIPANT PRICING $449 Hard Copy or PDF Copy $548 Set (Set: Hard Copy & PDF) All hard copy orders include regular shipping and handling charges. Contact our office for multi-copy usage, licensing, overnight shipping and bulk orders. Authorization to photocopy information, tables or graphs contained in this summary is expressly prohibited without written permission of The Platt Group. For customized reprints of tables, graphs or analysis within this report or of the August, September or October issues, please contact The Platt Group. The Platt Group 4000 West 106 th Street, Suite , Carmel, IN Phone: (317) Fax: (317) Web: info@plattgroupllc.com INSIDE PUBLIC ACCOUNTING (ISSN )

3 PREFACE The INSIDE Public Accounting (IPA) National Benchmarking Report is one of the most complete, independent, up-to-date sets of economic and management statistics available about the accounting profession. The 2010 IPA National Benchmarking Report (based on fiscal year data) contains information representing more than 19,752 partners and 200,454 total staff. The firms that participated in this year s INSIDE Public Accounting Annual Survey and Analysis of Firms represent an aggregate of $45.9 billion in net fees. Each submitted survey is thoroughly examined individually. If any data appears to be incorrect or questionable, a team member from The Platt Group communicates with the firm to resolve any questions. While IPA does everything possible to ensure accurate data, the ultimate responsibility lies with participating firms to provide the most accurate data. Questionnaires completed by participants in individual Excel spreadsheets and are compiled by a team member of The Platt Group into a master spreadsheet. Consequently, no data entry is done by our organization, with no corresponding opportunity for data entry errors. Data is compiled and presented by ranges of firm sizes and geographic regions. We do not provide data on individual firms, as doing so would permit identities of individual firms to be determined. TERMS AND DEFINITIONS Non-National(s): This category includes all firms that participated in the survey except Big Four and national firms those firms with offices across the entire United States. Averages: The averages reported in the survey are averages of data supplied by participants. In some instances, the averages may not appear to total correctly; this is a function of rounding. >$75 Million Includes Participating Nationals (Excluding Big Four): In the tables on pages 1-53, highlighted in the full report, we break out all statistics by size of firm. For the row that highlights >$75 million we include ALL participating firms above $75 million, which includes participating national firms. The Big Four firms are NOT included in this category.

4 THE IPA TOP 100 Information gathered from the IPA Annual Survey and Analysis of Firms is used to develop the IPA Top 100, a list of America s 100 largest firms, which is highlighted annually in the August issue of INSIDE Public Accounting. THE IPA ALL-STARS, THE IPA BEST OF THE BEST NEW IN 2010, THE IPA BEYOND THE TOP 100 Following analysis of all participating firm s survey data, IPA names those firms earning All-Star and Best of the Best status. Articles detailing each designation, regional breakouts and additional analysis appear annually in the September and October issues of IPA. In September of 2010, IPA debuted the IPA Beyond the IPA Top 100, those firms ranking No in the U.S. THE INSIDE PUBLIC ACCOUNTING NATIONAL BENCHMARKING REPORT The IPA National Benchmarking Report allows a more detailed presentation of results on all survey participants. Data in the report may differ slightly from that previously reported in IPA s newsletters due to the fact that firms continue submitting data and clarifications past each of the monthly newsletter deadlines. To be most useful, the report must provide relevant information. The Platt Group invites you as a reader and/or participant to call or write us with your candid critique, suggestions and questions. Please contact us at (317) with your thoughts or questions. The IPA National Benchmarking Report is published annually. It is one of the longestrunning, most up-to-date, independent reports on the accounting profession. Thank you, The Platt Group MAIL: The Platt Group West 106th St., Suite , Carmel, IN PHONE: (317) FAX: (317) info@plattgroupllc.com WEB:

5 Dear Reader, The value of looking back at a year like FY 09 is not to prove what everyone already knows: it was one of the toughest years for the accounting profession as well as all business sectors in the U.S. for more than 20 years. The value in looking back is being able to dissect, analyze, interpret, reveal and predict circumstances under which one firm moves forward and another firm moves backward. 2009/2010 was, by no means, a washout across the board. Many winners successfully moved the ball down the field. The challenge comes in figuring out what winning means in the current environment. With double-digit growth and skyrocketing partner compensation numbers throughout most of the first decade of the 21 st century, firms grew to expect a growth curve that was pointed forever toward the heavens. Planning for that kind of growth built a mindset of quickly amassing talent, expanding services and expecting growth, instead of the traditional mindset of controlling growth, watching expenses and managing the bottom line. Some firms, like the IPA Best of the Best firms who have been on the list for over five years in a row, took the right steps at a measured pace to consistently deliver respectable returns during the up-years as well as the down. Most firms made some quick adjustments in late 2008/early 2009 to account for the sudden shift in the economic climate reining in expenses, cutting loose underachievers and holding partners more accountable. Some went out of their way to protect staff and avoid layoffs, with partners taking a hit on compensation to preserve their core and be poised for recovery. Others worked to protect compensation levels and pruned their trees, shedding marginal partners, marginal staff and marginal offices so only the strong survive. Looking back at a year like this requires a willingness to acknowledge your motivations, to be open to learning from others and to honestly compare how your firm did in an environment that was tough on everyone. Comparing historical data also gives you an opportunity to plan for the future by previewing what successful firms will look like who can quickly recover from a deep recession. As you review the full IPA National Benchmarking Report, look at it not only as a scorecard of past achievement, but also as a potential roadmap to a quicker recovery. There are plenty of good reasons to be bullish about the future; we hope this tool helps in some small way to get you there quickly and successfully. All the best, Mike & Kelly Platt Publishers INSIDE Public Accounting The 2010 National Benchmarking Report

6 THE COMPLETE BENCHMARKING REPORT CONTAINS THE FOLLOWING TABLE OF CONTENTS EXCERPTED FROM THE 2010 IPA NATIONAL BENCHMARKING REPORT TABLE OF CONTENTS Page(s) PREFACE... i REPORT HIGHLIGHTS... iv TOP NICHES... xxii FEES AND INCOME Gross and Net Fees... 1 Net Fees, Percentage Change... 1 Net Income... 1 Net Income, Percentage Change... 1 Net Income as Percentage of Fees... 1 Net Income Per Partner... 1 Net Income Per Equity Partner... 1 Fees Per Equity Partner... 2 Fees Per Partner (All)... 2 Fees Per Professional... 2 Fees Per Employee... 2 Fees Per Charge Hour... 2 Net Income Per Best of the Best Partners / Graph... 2A Net Fees Per Partner (Equity and All) / Graph... 2B FEES BY PRACTICE AREA Accounting and Auditing Fees... 3 Tax Fees... 3 Fees From Other Sources... 3 FEES FROM SPECIFIC PRACTICE AREAS Business Valuation Fees... 4 Computer Consulting Fees... 4 Estate Planning Fees... 4 Financial Services Fees... 4 Health Care Fees... 5 Law Firms and Litigation Fees... 5 Merger and Acquisition Fees... 5 All Other Fees... 5 OFFICES, SEC CLIENTS Number of Offices... 6 Number of SEC Clients... 6 Change in Number of SEC Clients... 6 ACCOUNTS RECEIVABLE, WORK IN PROGRESS (WIP) AND REALIZATION Receivables, Billed and Unbilled... 7 Realization... 7 STAFFING Number of Personnel By Position... 8 No. of Professionals Per Administrative Staff / Graph... 8A Professional - Equity Partner Ratio... 9 Staff Turnover... 9 Pay Per Professional... 9

7 Staff Tenure... 9 Ratio of Equity Partner Comp. - Professional Staff Salary/ Graph... 9A HOURS NON-PARTNER Professional Staff Charge Hours Professional Staff Work Hours Professional Staff Percentage Billable Charge Hours of Other Staff BILLING RATES Partners Managers Seniors Entry-Level Staff Paraprofessionals Administrative Average Expected Billing Rate Increases Comparisons of Billing Rates / Graph... 11A Billing Rates All Non-Nationals Partners, Manager, Seniors / Graph... 11B PARTNER WORKLOADS Managing Partner, Dollar Volume Managed Managing Partner, Charge Hours Equity Partners, Charge Hours Partners, Charge Hours (All) Equity Partners, Work Hours Partners, Work Hours (All) Partners, Percentage Billable Total Hours Managed Per Partner Annual Charge Hours Per Partner All Non-Nationals / Graph... 12A MERGERS Number of Mergers Staff and Partners Added Net Fees Added NON-PARTNER, NON-TRADITIONAL CEO Average Years With Firm Non-Partner CEO Average Salaries MARKETING STAFF AND FEE GROWTH Average Years With Firm Member of Association for Accounting Marketing (AAM) Fee Growth with Marketing Professionals Fee Growth Without Marketing Professionals Fee Growth All Firms MARKETING DIRECTORS SALARIES Average Years With Firm Marketing Directors Salaries MARKETING COORDINATORS SALARIES Average Years With Firm Marketing Coordinators Salaries ADMINISTRATORS AND NET INCOME PERCENTAGE Average Years With Firm Net Income as Percentage Fees With Administrator on Staff No Firm Administrator Net Income as Percentage Fees With No Administrator Member of Association for Accounting Administration (AAA) Average Years With Firm Administrators Salaries... 19

8 IT DIRECTORS/MANAGERS SALARIES Average Years With Firm IT Directors /Managers Salaries HUMAN RESOURCES DIRECTORS SALARIES Average Years With Firm HR Directors Average Salaries PARTNER ISSUES Partner Compensation New Equity Partners New Non-Equity Partners Average Comp. All Partners Average Comp. Equity Partners Average Comp. Non-Equity Partners Ratio of Highest Comp. to Lowest Comp All Partner Compensation / Equity Partner Compensation / Graph... 22A Compensated For Originating Work Compensated For Management Compensated For Training Compensated For Excess Billable Hours Formula Based System Partner Group Decides Comp Compensation Committee System Open Compensation System Partner Retirement Plans Funded, Unfunded or Partially Funded Cap on Payments Current Retirement Obligation Average Age of Partners Mandatory Retirement/Stated Retirement Age Partners Retiring/Partners Terminated Partner Retirement Funding Instruments Managing Partner/CEO Ages Managing Partner Term Limits Partner Eligibility Requirements Partner Training STAFF SALARIES Salaries by Years of Experience Staff Salary Graphs... 31A & 31B PLANNING / GOVERNANCE ISSUES Upward Evaluations Degree Reviews Partner Performance Reviews Strategic Plan Succession Plan Marketing Plan Disaster Recovery Plan Core Values Partner Code of Conduct Partner Agreements FIRM ADMINISTRATION Facilities Net Fees Per Square Footage Avg. Sq. Foot Per Person (Total Personnel) Personnel Costs Malpractice Insurance Costs Marketing Costs Training Costs Technology Costs... 36

9 Recruiting Costs Firm Capital Capital Requirements CPE Hours Per Professional Training Budget Per Professional Percentage of CPE From Online Courses Miscellaneous Training Expenses MEMBERSHIPS Member of an Accounting Association Considering Changing Association Member of PCAOB Member of AAM Member of AAA TECHNOLOGY Technology Budget No. of Firms Projecting an Increase OUTSOURCING TAX RETURNS NICHES A BENEFITS Maternity Paternity Elder Care Adoption Domestic Partner Partner Sabbaticals Staff Sabbaticals Wellness Programs Other Benefits Offered DRESS CODE APPENDIX I - INSIDE Public Accounting August 2010 Issue IPA s Top 100 INSIDE Public Accounting September 2010 Issue IPA s All-Stars and Beyond The IPA Top 100 INSIDE Public Accounting October 2010 Issue IPA s Best of the Best Firms APPENDIX II The INSIDE Public Accounting Annual Survey and Analysis of Firms Questionnaire

10 EXECUTIVE SUMMARY HIGHLIGHTS This complimentary EXECUTIVE SUMMARY is sent to all firms that fully participated in the 2010 INSIDE Public Accounting Annual Survey and Analysis of Firms. Editorial Note: Unless otherwise indicated, all commentary relates to non-national firms. Not all firms chose to answer all questions. Percentages cited in the following pages are based on firms that answered those specific questions. FEE GROWTH The headline that everyone knows: growth was flat last year. While average fee growth for all non-national firms in the survey this year eked out a positive growth number at 0.3%, a deeper look reveals two stories. Larger firms generally took the bigger hit, and smaller, more nimble firms found paths toward growth. A look at the graph below shows almost a perfect bell curve for the profession, with growth coming to many and declines coming for an equal number of firms. Of 79 Firms that reported a 5% decline or more Also experienced an 11.3% drop in net income Average 44.6% audit fees as a percentage of total fees Averaged 38.5% tax fees as a percentage of total fees Averaged $549 net fee per square foot of office space Include 27 Top 100 firms, including 10 Top 20 firms Have seven (7) offices on average 31 provide audits to SEC clients Experienced 15.3% staff turnover Averaged 1,017 equity partner charge hours Have retirement obligations of 2.7% of net fees Of 35 firms that reported fee growth above 10%... Experienced 25% increase in net income Averaged 46.5% audit fees as a percentage of total fees Averaged 37.8% tax fees as a percentage of total fees Have three (3) offices on average 13 provide audits to SEC clients Include five IPA Top 100 firms Experienced 11.5% staff turnover Averaged 1,126 equity partner charge hours Enjoyed $605 net fee per square foot of office space Have retirement obligations of 1.0% of net fees 10% of Firms Had Greater Than 10% Growth Of almost 400 firms that participated in this year s Annual INSIDE Public Accounting Survey and Analysis of Firms, 35 firms checked in with a growth rate above 10%, excluding the effects of all mergers. In a world where flat is average, how did some firms grow organically above 10%? What did they have in common? Seven firms were above $25 million. 11 firms were in the sweet spot of $10 million-$25 million.

11 Five firms were $5 million-$10 million. 12 firms were in a second sweet spot of $1 million-$5 million. Spread evenly across the country, with the exception of only one from the Great Lakes region. Had 46% A&A, 38% tax and 16% non-traditional services. Experienced an incredible 25% increase in net income, versus flat for the average firm. A Ten-Year History Of Revenue Growth Of Non-National Firms 16% 14% 12% 10% 8% 6% 4% 2% 0% FEES PER PARTNER Editor s note: Over the years, a significant trend to follow has been the proliferation of nonequity partners. However, as the numbers of non-equity partners started to climb, traditional metrics such as net fees per partner or net income per partner started to get a bit muddied. This year, IPA has made an adjustment to its calculations to account for the changes so that equity partner metrics would be more easily accessed. A full analysis and details are included in the IPA National Benchmarking Report, along with corresponding graphs and tables.

12 DECLINE IN FEES PER EQUITY PARTNER In reviewing changes from last year to this, non-national firms across the board saw a decline in fees per equity partner, as shown in the table below: >$75M down 4.0% $10M-$15M down 13.1% $50M -$75M down 9.6% $5M-$10M down 3.5% $30M -$50M down 9.0% $3M-$5M down 3.5% $20M -$30M up 7.2%* <$3M up 5.5% $15M-$20M down 7.2% Editorial Note: *Toward the end of 2009, several firms in the $20-30 million band had a reduction in the number of equity partners, thereby affecting the fees per equity partner calculations. FEE PRESSURE REFLECTED IN NET FEE PER CHARGE HOUR Competition in a down economy forces some firms to lower fees in an attempt to retain business. Collectively, the non-national firms in the survey this year experienced a setback of $3.25 in the fees they collected for every hour charged to the client down just slightly over 2.0%. This reduction, however, was not experienced equally across the board. It was felt more by the largest non-national firms in the country (above $75 million) who, as a group, averaged almost a 3% reduction in net fees per charge hour versus last year, down $5.20. Also, the $15 million-$20 million group experienced a 2.4% drop down $3.60; and the $5 million-$10 million group experienced a 1.8% reduction down $2.61 per hour. A full analysis and details are included in the IPA National Benchmarking Report, along with corresponding graphs and tables. Those in the $20 million-$75 million firms did not feel the same pressure as a group, with fees collected per charge hour up slightly over last year. The $3 million-$5 million firms as a group saw the greatest increase, adding $7.29 to every hour charged, up 5.5% over last year. NET INCOME GROWTH: A TALE OF TWO OTHER CITIES Like revenue growth rates, net income growth rates showed a mild 0.4% increase over last year, but that doesn t begin to tell the story. Rates of increase and decline were all over the map as firms made changes in operations to preserve the bottom line. Consider the following:

13 44% of all firms saw a positive increase in net income (including 37 IPA Top 100 firms) 20% of all firms saw income grow by more than 10%. 20 very fortunate and very strategic firms grew net income by over 25% (and half of those were larger than $10 million in fees). 52% of all firms saw a drop in net income. 21% of all firms saw a drop in net income of more than 10%. 7% of all firms saw their net income decrease by more than 25%. (Forty percent reside in the West, which has experienced unprecedented growth in the last couple of years.) PROFIT MARGIN DIPS BELOW 30% The past three years have seen profit margins slipping, as firms struggle to monitor expenses in light of shrinking revenues. From a high (net income as a percentage of revenue) of 32.9% in 2007, profit margins for the IPA Top 100 have drifted downward 31.7% in 2008, 29.1% in 2009 and holding steady this year at 29.1% as expense management kicked into high gear in the middle of the recession. The current margin rate of 29.1% is the historic low since IPA first began keeping records 20 years ago. The historic high margin of 32.9% was reached in One of the issues that keep MPs and office administrators up at night is how to move more fees to the bottom line. For the last few years, profit margins have been drifting downward from 34.2% of net fees in 2005 to 30.1% in last year s report, to this year where overall profit margin dropped to 29.3% for all non-national firms as a group. A big part of the expense equation comes from personnel costs, which despite the increases in salaries and benefits have been hovering in the range of 45-47% as a percentage of net fees over the past few years: PERSONNEL COSTS AS A PERCENTAGE OF NET FEES % % % % % % % But looking at the aggregate drop in profit margins is not all bad news. Twenty four percent of all firms are pushing 35% or more of net fees to the bottom line, and 11%, are at more than 40% (the same percentage as last year.) What do these high-margin firms those who are pushing more than 40 cents on every dollar to the net income have in common?

14 36% are headquartered in the West; 21% in the Northeast; and 21% in the Southeast. They have a service mix comprised of equal parts audit (43%) and tax (43%). 60% are under $15 million in net fees; 21% are IPA Top 100 firms. They have a lower turnover rate as a group (10.1%) than the average firm (12.5%) and therefore don t need to spend as much on recruiting, training or efficiencies lost to the learning curve. They pay their professionals more than the average. Starting salaries are 2% higher, and experienced (10+ years) professionals earn 9% more than the average. Average pay for all professionals is 6% higher. With all the increased salaries though, personnel costs as a percentage of net fees are just 37.7%, almost 19% less than their peers. They achieve better utilization rates on average 9% more than all other firms. They allocate more money to training $2,300 per year, or 11% more than their peers. Equity partners charge 200 more hours per year than the average participating firm. They operate with 7% less square feet of office space per professional, yielding a net fee per square foot at $646, 18% higher than the average. They have higher hourly rates. On average, they charge $9 more per partner hour, $11 more for managers and $14 more for seniors. TRAINING BUDGETS FALL VICTIM TO ECONOMIC REALITIES As firms continue belt tightening, one of the ongoing casualties is training for professionals. As we have seen in earlier observations, IPA Best of the Best firms and firms that turn in strong performances all maintain a strong commitment to training. By reducing the number of hours and the budget available per professional, firms risk weakening their core and losing competitive advantages not only to other CPA firms, but also to alternate employment opportunities for gifted professionals in their local marketplaces. The trend holds true for both larger firms as well as all non-national firms. A full analysis and details are included in the IPA National Benchmarking Report, along with corresponding graphs and tables. FIRMS > $32 MILLION Year CPE Hours / Professional Training Budget / Professional $1, $1, $2, $2, $2, $2,276

15 ALL NON-NATIONAL FIRMS Year CPE Hours / Professional Training Budget / Professional $1, $1, $2, $2, $2, $2,083 PARTNERS HOARDING WORK DOES NOT PAY OFF Across all participating non-national firms, professional staff account for 80% of all chargeable hours in their firms. The number varies from IPA Top 100 (83%) to non-ipa Top 100 (78%). Among the IPA Top 100, five firms have partners performing 25% or more of the charge hours of the firm, and only six where partners are responsible for 10% or less of all charge hours. Some firms will argue that the reason they (or a competitor) are making more money is that the partners are hoarding the work. The numbers don t support that case though. See table below. Equity Partner Average Avg. Turnover Top 100 Compensation Staff Pay Percentage Professionals > 90% of all charge hours $569,265 $87, % IPA Top 100 Average $537,253 $79, % Professionals < 75% of all charge hours $436,208 $68, % Non-Top 100 Professionals > 90% of all charge hours $371,319 $68, % All Non- IPA Top Average $343,409 $72, % Professionals < 75% of all charge hours $313,869 $72, % Copyright 2010 INSIDE Public Accounting / The Platt Group PARTNER CHARGE HOURS CONTINUE TO RECEDE, BUT WORK HOURS REMAIN CONSISTENTLY HIGH Much has been made in recent years of the continued decline of chargeable hours at the partner level. Finding the right balance between partner-level charge hours (as opposed to hoarding hours as described above), mentoring, training, business development and strategic planning continues to be the Holy Grail for all firms. A full analysis and details are included in the IPA National Benchmarking Report, along with corresponding graphs and tables.

16 Annual Charge Hours All Partners Non-Nationals 1,250 1,200 1,150 1,100 1,197 1,204 1,188 1,152 1,154 1,143 1,170 1,121 1,145 1,097 1,066 1,050 1, Amid all the focus on charge hours, a discussion about the number of hours partners work has been all but avoided in conference rooms across the country, but everyone knows it is a consistent theme in universities and among younger staff as they contemplate partnership in a firm as a career goal. Consider the information below, showing partner work hours (combined both equity and non-equity) in non-national firms: ,392 total hours (2,417 average for equity partners) ,386 total hours ,413 total hours ,330 total hours ,397 total hours ,397 total hours ,413 total hours Consistently hovering around 2,400 work hours per year, for those who do manage to get away for two weeks on vacation, this amounts to almost a full extra day per week of work on average for partners. Those seeking work-life balance are turned off by this reality and may choose to avoid the partner path. However, for those motivated by the compensation levels of equity partners in non-national firms, the additional work hours are simply the price that needs to be paid for success.

17 NEW EQUITY PARTNERS EARN 54 CENTS FOR EVERY $1 OF OTHER OWNERS When someone becomes an equity partner in a firm, what is the right amount to pay them? Partner compensation philosophies are as varied as partners. On average, across all non-national firms, a new equity owner can expect to earn $210,698 or about 54% of the average of all equity owners across the participating firms. But let s dig a bit deeper. New owners in a Top 100 firm can expect to earn 50% of the average owner when they come in the door and new owners in $20 million-$30 million firms can expect about 58%. For $10 million-$20 million firms, the number goes to 63%. And for firms under $10 million, where partner parity is more likely, new owners earn 62% of the average of owners. EQUITY PARTNER COMPENSATION RETURNS TO 2005/2006 LEVELS In 2005, IPA began making the distinction between partner compensation and equity partner compensation as the number of non-equity partners continued to grow. In 2006 and 2007 we saw a great run-up in owner compensation, which peaked in the 2008 report at more than $467,000 per owner across all non-national firms. But since then, a steady slide downward, with non-national firms losing 17% off their peak in Who would have guessed that in 2010 we would be looking at compensation rates similar to those reported in the 2006? See graph. Equity Partner Compensation Three-Year Trend $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 All Non-Nationals >$75 M $50-75M $30 50M $10 30M $3 10M < $3M $100,000 $

18 WHAT ABOUT EQUITY PARTNER COMPENSATION AS A MULTIPLE OF AVERAGE STAFF PAY? How much more should an equity partner make than the average professional in the firm he or she owns? Fortune 1000 companies are rife with stories about CEOs routinely making 100, 200, and sometimes even 500 times what the average staff member in their company makes. The accounting profession is nothing like the Fortune 1000, but equity partner compensation averages about 5.1 times the average professional staff pay and can range from two to 15 times the average pay of professionals in the firm. A full analysis and details are included in the IPA National Benchmarking Report, along with corresponding graphs and tables. > 10x Only 3% of non-national firms report average equity partner compensation at a rate greater than 10 times the average professional staff salary. Collectively they average $38 million in net fees, and two-thirds are IPA Top 100. As a group, they experienced a 2.8% growth in fees and a 3.4% growth in net income last year. They are highly leveraged at 9.8 professionals to every equity partner. At $79,975, the average professional in their firm makes about $5,000 more than others in non-national firms. They are big on training requiring more than 60 hours a year of CPE and are supported by a training budget 75% greater than the norm. Eighty-six percent of the charge hours of the firm are generated by non-partner professional staff about 7.5% higher than the average. But owners carry their weight too. Averaging 1,231 charge hours a year, they eclipse the average owner by 160 extra charge hours, and at 2,538 work hours a year, they surpass their peers by more than 120 hours per year. At over $960,000 in average equity partner compensation, these owners are the envy of their peers. 6 10x Twenty-five percent of firms report average equity partner compensation between six and 10 times average staff pay. Collectively they average $35 million in net fees, and 38% of this group is among the IPA Top 100. As a group, they experienced a 0.9% growth in fees and a 1.3% growth in net income last year. They are also highly leveraged 8.1 professionals to every equity partner. The average professional in their firm makes $76,763. CPE requirements aren t nearly as big for this group at 49 hours a year. Eighty-two percent of the charge hours of the firm are generated by non-partner professional staff in these firms. Equity partners average 1,128 charge hours and 2,457 work hours a year. This group enjoys average equity partner compensation of $569, x A full 40% of firms report average equity partner compensation between four and six times average staff pay. Collectively, they average $24 million in net fees, and 24% of this group is made up of IPA Top 100 firms. As a group, last year they experienced a 0.5% growth in fees and a 0.3% growth in net income. Leverage for these firms is 6.6 professionals to every equity partner. The average professional in their firm makes $75,232. CPE requirements are the same

19 as the previous group 49 hours a year of CPE. Eighty percent of the charge hours of the firm are generated by non-partner professional staff in these firms. Equity partners average 1,074 charge hours and 2,420 work hours a year. This group enjoys average equity partner compensation of $364,684. < 4x About one-third of non-national firms report average equity partner compensation at less than four times average staff pay. Collectively these firms average $12 million in net fees, and only 3% of this group is made up of IPA Top 100 firms. As a group, they experienced a -0.6% growth in fees and a 1.0% growth in net income last year. Leverage for these firms is 4.8 professionals to every equity partner. The average professional in these firms makes $70,833. CPE requirements are the same as the previous group 49 hours a year of CPE. Seventy-six percent of the charge hours of the firm are generated by non-partner professional staff in these firms. Equity partners average 1,029 charge hours and 2,384 work hours a year. This group enjoys average equity partner compensation of $211,660. HIGH-TO-LOW PARTNER COMP RATIO CONTINUES TO REVEAL PHILOSOPHY The partner compensation ratio of highest-paid to lowest-paid partner tells a lot about a firm s culture and its emphasis on partner parity versus a pay-for-what-you re-worth philosophy. How do participating firms address the issue of partner compensation spread? Does that philosophy have any measurable effect on average partner compensation? It is interesting to note the average EQUITY partner compensation for firms with various high-to-low partner comp ratios: : Average Compensation......$294,627 ($290,624*) 5 of 97 is an IPA Top : Average Compensation...$345,623 ($343,604*) 9 of 76 is an IPA Top : Average Compensation...$410,724 ($390,837*) 13 of 56 is an IPA Top : Average Compensation....$474,865 ($433,849*) 9 of 22 is an IPA Top : Average Compensation...$507,134 ($475,507*) 9 of 17 is an IPA Top : Average Compensation....$554,801 ($570,764*) 5 of 8 is an IPA Top : Average Compensation...$609,681 ($635,055*) 4 of 10 is an IPA Top 100 > 10.0: Average Compensation $703,349 ($901,820*) 10 of 11 is an IPA Top 100 Editorial Note: *Compensation numbers highlighted in the 2009 IPA Benchmarking Report.

20 KEY METRICS: 2010 IPA BEST OF THE BEST NET INCOME PER PARTNER Net Income Per Partner (NIPP) for Best of the Best firms has dropped the last two years due to three factors: 1) the economic downturn has depressed net income numbers for all firms; 2) continued growth in non-equity partner ranks has reduced NIPP comparisons; and 3) improvements to the formula to identify Best of the Best firms have allowed firms in non-major metro areas to compete more evenly for the title of Best of the Best, so the numbers are not as heavily biased towards the East or West Coasts, where fees and income tend to be greater. $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $

21 PARTNER RETIREMENT PLANS GETTING BETTER, BUT NOT QUITE THERE YET Eighty-two percent of firms that responded to the question report they have a retirement plan in place. (Of the remaining firms, six of those without any kind of retirement plan in place, are IPA Top 100, which is a bit of a surprise.) Among those with a retirement plan in place: 6.7% are fully funded These firms include among them just six of the IPA Top 100; 25% of them report no retirement payout obligations; those that do average 3.0% of net fees for partner payouts; 70% of the firms are located in the Northeast or the West; they enjoy a net income per equity partner of $463,805 and equity partner compensation averaging $408, % are partially funded These firms include among them 32 of the IPA Top 100; 62% of them report no retirement payout obligations; those that do average 3.9% of net fees for partner payouts; 55% of the firms are located in the Southeast or the West; they enjoy a net income per equity partner of $477,056 and equity partner compensation averaging $432, % are unfunded These firms include among them 27 of the IPA Top 100; 23% report no retirement payout obligations; those that do average 4.0% of net fees for partner payouts; these firms are evenly spread throughout the country; they enjoy a net income per equity partner of $415,109 and equity partner compensation averaging $378,208. A full analysis and details are included in the IPA National Benchmarking Report, along with corresponding graphs and tables. A LOOK AT MALPRACTICE COSTS REVEALS AUDIT RISK Malpractice insurance costs have not changed much over the years, coming in at 0.89% of net fees on average for all non-national firms. But the range across all participating firms goes from a high of 6.4% to a low of 1/100 th of 1 percent of net fees. So what are the factors that account for this variation? Of 13 firms that report malpractice costs above 2.0% of net fees, only two have large nontraditional services practices which make up more than 40% of fees.

22 When malpractice costs are... Above 2.0% of fees...a&a averages 57.8% of fees, Tax 29.8%, Other 13.4% 1.5% - 2.0% of fees...a&a averages 50.4% of fees, Tax 35.5%, Other 17.3% 1.0% - 1.5% of fees..a&a averages 45.2% of fees, Tax 39.8%, Other 17.5% 0.5% - 1.0% of fees...a&a averages 44.3% of fees, Tax 40.2%, Other 17.3% <0.5% of fees..a&a averages 38.7% of fees, Tax 39.4%, Other 24.2% CLEAREST PICTURE YET OF FEMALE OWNERSHIP Over the past few years, IPA has reported on the slow, steady increase in female partners within the profession. A true picture was somewhat muddied, however, by combining equity and non-equity ownership when considering partners in a CPA firm. So where exactly do we stand? By separating out equity partners, we have the clearest picture yet of the level of ownership of CPA firms by women. Percentage of Female Equity Owners All Non-Nationals 14.6% > $75M 14.0% $50M $75M 13.2% $30M $50M 14.8% $20M $30M 16.3% $15M $20M 15.9% $10M $15M 16.7% $5M $10M 12.6% $3M $5M 12.1% < $3M 18.5%

23 PARTNER SABBATICALS RELIEVES SOME OF THE STRESS Fourteen percent of firms that provided a response to this question now have some kind of partner sabbatical program. These include 15 IPA Top 100 firms, 17 firms in the $10 million-$30 million range, and another 12 firms below $10 million. Firms that have implemented sabbatical programs report that partners return refreshed, partner families are more in line with the long-term needs of the firm, staff rises to the occasion, succession planning issues are reduced and incoming partners are motivated by the prospect of disappearing for several weeks at the insistence of their firm. STAFF SABBATICALS GAINING IN POPULARITY As firms wrestle with work-life balance issues, competitive advantages and competition for excellent staff, staff sabbaticals are a natural extension. Staff sabbaticals are being offered by 11% of non-national firms, including one-third of those who also offer partner sabbaticals. A full analysis and details are included in the IPA National Benchmarking Report, along with corresponding graphs and tables. Interestingly, the roster of firms offering staff sabbaticals is dominated by firms located in the West and in the Northeast, where competition for the best and brightest is fiercest and where work-life challenges seem the most intense. OUTSOURCING OF TAX RETURNS? WELL, YES, KIND OF Back in the day, the newest-latest-greatest idea to hit the profession was the idea of outsourcing tax returns. Security issues were addressed by technology, and the challenges of dealing with a third party overseas were worked out. Technically it was possible to have someone else prepare returns at a much lower cost. But perceptions, cultural barriers, experiences with additional quality control issues and workflow control biases have prevented outsourcing tax returns to take a stronghold in U.S. accounting firms. Fewer than 10% of the non-national firms in our survey report outsourcing their returns, and then they are sending out only 28% of their work. These firms average $32 million in net fees of which $12 million comes from tax revenues. Only 4% of firms are currently outsourcing their work to India, and these 4% are sending only 35% of their returns overseas. Preliminary indications are that the landscape won t change much in the near future for non-national firms when it comes to outsourcing tax returns.

24 ATTENTION INTERNET-BASED CPE PROVIDERS: OPPORTUNITY IS JUST A CLICK AWAY! It s been 15 years since firms were introduced to the wonder of opportunities available through the Internet. But let s be honest: early Internet-based CPE was not the smoothest training, nor was the system of delivery quite what we had hoped for. Well, it s now 2010 and technology has evolved considerably and continues to impress. Participating firms report that Internet training now accounts for 13.1% of all training for professionals, with 1 out of every 6 firms now turning to the Internet for at least 25% of their training needs. The 260 non-national firms that provided information on this one question (and their 31,000 professional staff) represent a potential Internet-based training market of $9.75 million. A NOTE TO ASSOCIATION EXECUTIVES: CHECK IN WITH YOUR MEMBERS Among participating firms this year, 300 reported an affiliation with some type of CPA firm association. Association membership remains strong, and the benefits of membership far outweigh the costs for those who participate. But 17 of these firms indicate that they don t know if they will stay where they are or have already decided to leave their association. While it s not a huge number just over 5% it is a good reminder for all associations to check in with their members, assess their level of satisfaction and continue to evolve to meet the changing demands of the profession. THE DRESS CODE DEBATE IS ALL BUT OVER The three-piece suit has given way to the business suit, and the business suit has given way to business casual. A full 85% of all non-national firms are now business casual all the time except when seeing clients. Ten percent of the firms are holding on to business casual on Fridays only, and fewer than 5% are sticking to the protocols of the past, requiring business attire all the time. Among those holdouts, 75% are firms under $10 million in fees.

25 NOW IS THE TIME TO WORK ON YOUR DISASTER RECOVERY PLAN Congratulations to the 57% of you who have a disaster recovery plan in place. You may look at it annually or update it every five years, but at least there s a framework for putting the pieces back together again if disaster strikes. Now, as for the 43% of you who don t have a plan, we did a little checking and determined that: 4% of you live along the Mississippi River and are prone to flooding. 15% of you live in a high-risk earthquake zone. 15% of you live within 50 miles of the East Coast or Gulf Coast and are at risk of hurricanes and floods. 17% of you live in tornado alley. 27% of you live in an area prone to wild fires. 40% of you have CEOs above age 60 an age for increased risk of heart attack and stroke. And 52% of you live in an area marked high risk by a University of Arizona researcher who has identified the U.S. cities at highest risk of bioterrorism attack. So good luck to all of you, but maybe a little disaster planning would be helpful IPA SUBSCRIBER / FULL SURVEY PARTICIPANT PRICING $409 Hard Copy or PDF Copy $499 Set (Set: Hard Copy & PDF) 2010 NON-IPA SUBSCRIBER, NON-PARTICIPANT PRICING $449 Hard Copy or PDF Copy $548 Set (Set: Hard Copy & PDF) All hard copy orders include regular shipping and handling charges. Authorization to photocopy information, tables or graphs contained in this summary is expressly prohibited without written permission of The Platt Group. The Platt Group 4000 West 106 th Street, Suite , Carmel, IN Phone: (317) Fax: (317) Web: info@plattgroupllc.com

26 TOP NICHE PRACTICE AREAS OF ALL NON-NATIONAL FIRMS Nonprofit Estate/Financial Planning Family Owned Business Construction Manufacturing Real Estate Employee Benefits Business Valuations Wealth Management Litigation Support Wholesale Law Firms Healthcare Forensic Financial Services Medical M&A Government Computer Consultsing Retail International Tax HighTech SOX Profitability Auto Dealers Hospitality Transport Financial Institutions / Banks SEC Audits Insurance Personal Business Mgmt Pensions Payroll Bankruptcy Printing Performance Entertainment Risk Management Svcs Outsourcing Telecommunications Human Resources Consulting Agribusiness Corporate Finance Energy/Utilities Employee Placement Credit Unions Apparel Textile 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

27 Subscribe to The Award-Winning INSIDE Public Accounting Newsletter! INSIDE PUBLIC ACCOUNTING is a monthly informative newsletter for the innovative CPA firm leader. With more than 20 years of reporting, IPA provides firm leaders and other key staff with Best practices Countless in-depth articles from managing partners and top consultants around the profession. In-depth advice and resources to help better manage your practice. Firm news and happenings of the profession and people. Analysis of top issues, benchmarks, trends and more. Strategies and expert advice for dealing with the toughest people issues. The longest-running ranking and analysis of the Top 100 firms in the nation. The IPA Beyond The Top 100, firms ranking from Indepth analysis of firms that consistently rank in the Top 25 in specific areas such as staff salaries, partner compensation, leverage, net income per partner and much more. The annual ranking of the Top 25 Best of the Best firms! This annual ranking is the gold-standard of firms that are at the top of the game and have stellar management. Timely association news, society news, partner news, firm news, rules and regulations and much more packed in every issue. Plus, as a subscriber, you will get BREAKING NEWS regarding mergers, and partner news. NOT AN IPA SUBSCRIBER? DON T BE LEFT IN THE DARK! SUBSCRIBE TO THE INSIDE PUBLIC ACCOUNTING MONTHLY NEWSLETTER Option 1 (1 year: $399*, 12 print issues) Option 2 (1 year: $498*, 12 print and 12 PDF issues) Check enclosed Charge my (circle one): Visa / MasterCard Sorry, we do NOT accept AMEX. Name Title Firm Mailing Address City State Zip Phone Address Card # Exp. Date Security Code Name on C.C. Credit Card Billing Address Alt. Contact Name Alt. Address *Pricing offer valid through November 30, Please make checks payable to: The Platt Consulting Group MAIL: The Platt Consulting Group West 106th St., Suite , Carmel, IN PHONE: (317) FAX: (317) info@plattgroupllc.com WEB:

28 OCTOBER 2010 INSIDE PUBLIC ACCOUNTING / INSIDE Public Accounting National Benchmarking Report The INSIDE Public Accounting National Benchmarking Report is an unparalleled tool to benchmark your firm s fiscal and management performance against hundreds of accounting firms nationwide. The report covers: Revenues/Fees Revenues by Practice Area Personnel Costs Net Income per Partner Staff Salaries Partner Charge Hours Partner Compensation Staff Benefits Revenue per Charge Hour Administrative Salaries Partner Workloads Realization IT Staff Salaries Professional Staff Chg. Hrs. Niche Areas Partner Retirement Issues Marketing Costs Growth Trends Training Requirements Marketing Staff Salaries Retirement Plans The IPA Best of the Best Comparisons and More! REPORT ORDER FORM IPA Subscriber, Full Survey Participant Non-IPA Subscriber, Non-Survey Participant No. of copies PDF Copy - $409/copy No. of copies PDF Copy - $449/copy No. of copies Print Copy - $409/copy* No. of copies Print Copy - $449/copy* No. of copies Print & PDF Copy - $499/set* No. of copies Print Copy & PDF Copy - $548/set* *Includes shipping and handling Name Firm Mailing Address City State Zip Phone Address (Required for PDF Version) Check enclosed Charge my (circle one): Visa / MasterCard Sorry, we do NOT accept AMEX. Card # Security Code Credit Card Billing Address Full name on the card Exp. Date City State Zip To place your order, please fax to (317) or send your payment along with this completed coupon to: The Platt Consulting Group 4000 West 106 th Street, Suite Carmel, IN Please make checks payable to: The Platt Consulting Group Phone: (317) Fax: (317) Web: insidepublicaccounting.com IT IS A VIOLATION OF FEDERAL COPYRIGHT LAW TO REPRODUCE ALL OR PART OF THIS PUBLICATION WITHOUT CONSENT. COPYRIGHT 2010 THE PLATT GROUP/INSIDE PUBLIC ACCOUNTING